Cheaper cars but legal fears after free trade agreement with South Korea

Cheaper Hyundais are among many benefits for consumers arising from the recently concluded Korea-Australia Free Trade Agreement talks but the deal may also expose the federal government to litigation by foreign companies claiming investor discrimination.

Kia, Daewoo and Hyundai cars, already among the most economical to buy, will become even more competitive in showrooms as a 5 per cent import tariff designed to protect jobs in the Australian motor industry is removed over the next three to five years.

But Australian manufacturers of car parts, such as the $140 million a year engine and gearbox export trade, will also become more competitive in South Korea when an existing 8 per cent tariff is scrapped there.

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Hitherto secret details of the agreement extend to 1800 pages and will be released on Monday by Trade Minister Andrew Robb.

The agreement is yet to be finally signed and is set to take effect from the end of this year, subject to parliamentary ratification.

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The arrangements entered into by both countries in December include what is known as an ''investor-state dispute settlement'' (ISDS) mechanism, which gives foreign companies the right to sue the Australian government if they think they are being denied access to our markets, such as that being pursued by tobacco companies over Australian plain packaging laws.

The controversial ISDS provision was not favoured by the previous Labor government but Mr Robb believes safeguards built into its design mean its inclusion will not leave Australia exposed.

Mr Robb will reassure taxpayers that so-called ''non-discriminatory'' action taken by a government - that is, action that does not single out just one company - such as the creation of product-wide tobacco laws prohibiting colourful packaging, will not be liable to legal action under the ISDS.

There will also be a fast resolution process to identify and dismiss ''frivolous'' claims made under the ISDS mechanism.

''Concerns about ISDS are totally overblown and are used by those who are 'anti-trade' in a bid to erode public confidence,'' Mr Robb said. ''If governments acted in accordance with their international obligations, there was nothing to fear from ISDS.

''The Philip Morris case against plain packaging was taken under an old investment treaty with Hong Kong and contemporary ISDS provisions contained far more explicit safeguards.'' Mr Robb defended the ISDS mechanism as a way for Australian businesses operating in foreign markets ''to protect investments against illegitimate actions of government''.

''They have provided a safeguard in countries with unreliable legal and political systems,'' he said.

The government will use the release of the full text of the agreement to extol the virtues of the trading relationship.

While progress towards freer markets will be slow in some sectors, such as beef, where Australian exporters will have to wait 15 years to see the complete removal of the 40 per cent import tariff in South Korea, overall the liberalised two-way trade could boost Australia's economy by as much as $650 million a year by that time.